(Bloomberg) -- Petroleos Mexicanos would be near default without the Mexican government’s support, Moody’s Investors Service said, downgrading the state oil company’s debt further into junk territory.

The credit rating company lowered Pemex’s corporate debt to B3 from B1 and maintained its negative outlook, according to a statement Friday. Another measure that considers government dependence, which Moody’s calls the Baseline Credit Assessment, was cut to ca from caa3, indicating the company would be highly likely to default without backing from the state. 

“Moody’s anticipates Pemex will have to increase its reliance on external funding to counterbalance its negative free cash flow,” Moody’s said. “The company operates with aggressive financial policies reflected in weak liquidity and very high debt levels, resulting in a capital structure that is untenable.”

Investors are searching for clues for how the government will address the company’s massive debt burden. Pemex has $11 billion coming due this year, and although President Andres Manuel Lopez Obrador’s administration has said it will cover the majority of those payments, it hasn’t presented a long term-plan for reducing the debt.

Pemex, the world’s most indebted oil company, has seen its debt burden balloon to around $106 billion while production lags and profits slump. The president, known as AMLO, has been lavishing support on Pemex in the form of tax cuts and capital injections, which haven’t reversed the company’s financial decline. 

His nationalistic policies have curtailed private-sector investment in Mexico’s oil industry, leaving much of the burden of developing the country’s oil fields to Pemex.

READ MORE: Mexico’s Next Leader Will Inherit Oil Giant’s $106 Billion Debt 

Moody’s said the ratings cut reflects its assumption of a probable shift in the government’s willingness to support the full service of Pemex’s debt in the next few years. That’s not only due to the company’s expanding cash needs, but also an expected further deterioration in the Mexican government’s own fiscal conditions in 2024. 

Lopez Obrador is pushing Mexico’s budget into what could be its biggest deficit since 1988, boosting spending on social programs and big infrastructure projects to cement his legacy in his final year of office.

A Pemex spokesman didn’t immediately respond to a request for comment on the debt downgrade. A Finance Ministry spokesman declined to comment.

Standard & Poor’s rates Pemex debt at BBB, above investment grade with a stable outlook. The company downgraded its rating on Pemex in March 2020. Fitch Ratings has a junk rating on Pemex debt.

--With assistance from Scott Squires and Max de Haldevang.

(Corrects definition of S&P rating in final paragraph of Feb. 9 story)

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